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As an entrepreneur, Rajesh Bhatia couldn't have asked for more. In nine years, his business has expanded from one branch to over 300; his company raised about Rs 120 crore through a recent IPO; and annual revenues doubled from Rs 41.15 crore last fiscal to Rs 81.08 crore.
But like most seasoned businessmen, he knows that the future of his business is tied to his ability to provide superior service to customers. So he has decided to plough back profits, by providing state-of-the-art facilities. In Bhatia's case, this translates into the best toys, alphabet books and cradles that he can get.
Bhatia heads the Tree House, the largest self-operated preschool education company in the country. What sets the Tree House apart from other players is that more than two-thirds of its centres are operated by the company. Most preschool businesses in India are run by franchises wherein branch operators are provided the brand and training by the company concerned.
No Franchises, Please
The Tree House management, however, has decided to operate most of their branches themselves. "If the business is good, then why would I sell my idea for Rs 5 lakh?" asks Bhatia. "Even Cafe Coffee Day and Domino's Pizza do not franchise their operations. What is this business of selling education like tickets?" The Tree House, on an average, spends Rs 40 lakh to develop a centre and most of the capital is invested in specialised day-care furniture, bathroom facilities and a mini play area. After three years of running a centre at full strength, the Tree House usually earns between Rs 80 lakh and Rs 1 crore per centre.
Bhatia, who started his career in the software industry, was literally forced into this business. In 2002, when his son turned two, Bhatia tried to find a preschool but failed. "There was a huge demand-supply mismatch and it was impossible to find a good playschool." Many preschools collected exorbitant fees and donations from parents, making it almost impossible for middle-class families to afford them. The lower middle class was not even on the radar of most preschools, despite the fact that their disposable income had increased considerably in urban areas.
At the same time, in the last decade, nuclear families and the demanding work schedules of parents, especially in cities, have made preschools almost a necessity. "Hundreds of families across the country have had bitter experiences while seeking admission for their children. They have to wait in queues, cough up a donation and also agree to unreasonable terms and conditions by school managements," says Bhatia.
Bhatia sensed there was a market for preschool centres in India, given that even a software professional like him was unable to get an admission for his child. He set up the Tree House in 2003 in Mumbai with the mandate that the education the company would provide would be more affordable.
Not Unaffordable
The fee at Tree House schools ranges from Rs 20,000 to around Rs 60,000 a year. The fee at each centre is decided after studying the local market and the ability of the residents to pay. The Tree House thus has several types of schools, depending on the area and the cost of operations.
"The one thing that I have learned about India over the years of doing business here is that lower middle class families are willing to pay for quality education. Nobody wants anything free. People who work as drivers, for instance, are willing to pay for their child's education," says Bhatia.
He talks about the people who live in the less affluent parts of cities. He meets them at parent-teacher gatherings and they keep reminding him that they only want their children to get the best education so that they would lead a better life.
Recent surveys indicate that there is a huge demand for preschool education in India. A Crisil research report revealed that the preschool business is expected to touch Rs 13,300 crore by 2015-16, out of which branded preschools are expected to contribute approximately Rs 4,500 crore.
A KPMG study has estimated that the preschool market in India is experiencing high growth and is currently worth around Rs 5,000 crore. About 11.5% of urban children between two and four years are going to preschools in India, says the report.
"Preschools are attractive because they are within the non-regulated space in the education sector. They are also less affected by the biggest issue in the education sector: non-availability of qualified faculty. In an under-penetrated market the low entry-barriers provides a big attraction for new players," observes the report.
Esops Too
One of the strategies adopted by the preschool chain is to give Esops to teachers. "Why is that a society expects teachers to play a vital role in nation building but are not supposed to seek a decent salary or lifestyle?" asks Bhatia. "When will teachers in this country get rich? Why is it that teachers should remain poor?"
(This story was published in economictimes.com : Dated 09-12-2012)